Articles

Will Baby Boomers Ever Truly Retire?  

July 25, 2018
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Many may keep working out of interest rather than need. 

Baby boomers realize that their retirements may not unfold like those of their parents. It’s suggested that perceptions of retirement have changed for this generation. A majority of boomers expect to work in their sixties and seventies, and that expectation may reflect their desire for engagement rather than any economic desperation.

Instead of an “endless Saturday,” the future may include some 8-to-5. When heads of U.S. households were asked how they envisioned retirement only a few respondents felt their retirements would be work-free. A slight majority said they would probably work in some context in the next act of their lives, possibly at a different type of job; and a few even said they had no intention to retire at all.

Debts aside, some people just like to work. Those presently on the job expect to stay in the workforce longer than their parents did.

How many boomers will manage to work past 65? This is one of the major unknowns in retirement planning today. We are watching a reasonably healthy generation age into seniority, one that can access more knowledge about being healthy than ever before – yet obesity rates have climbed even as advances have been made in treating so many illnesses.  Working past 65 probably means easing into part-time work – and not every employer permits such transitions for full-time employees. The federal government now has a training program in which FTE’s can make such a transition while training new workers and some larger companies do allow phased retirements, but this is not exactly the norm. Working less than a 40-hour week may also negatively impact a worker’s retirement account and employer-sponsored health care coverage.

Boomers who work after 65 may have to keep an eye on Medicare and Social Security. They will qualify for Medicare Part A (hospital coverage) at 65, but could consider signing up for Part B (doctor visits) within the appropriate enrollment window and either a Part C plan or Medigap coverage plus Medicare Part D.

Believe it or not, company size also influences when Medicare coverage starts for some 65-year-olds. Medicare will become the primary insurance for employees at firms with less than 20 workers when they turn 65, even if that company sponsors a health plan. At firms with 20 or more workers, the workplace health plan takes precedence over Medicare coverage, with 65-year-olds maintaining their eligibility for that employer-sponsored health coverage provided they work sufficient hours. Boomers who work for these larger employers may sign up for Part A and then enroll in Part B and optionally a Part C plan or Part D with Medigap coverage within eight months of retiring – they do not have to wait for the next open enrollment period. 

Are boomers really the retiring type? Given the amazing accomplishments and vitality of the baby boom generation, a wave of boomers working past 65 seems more like a probability than a possibility. Life is still exciting; there is so much more to be done.

At HFG Wealth Management, we embrace a method of financial planning known as Financial Life Planning™. We believe this is a financially effective and personally rewarding approach to creating a practical, lasting financial plan. As financial professionals using the life planning approach, our purpose is to assist individuals and families in creating a long-term vision that is consistent with their core values. At HFG we recognize that life events and life transitions can impact your financial responsibilities and your vision of the future. We are here to provide you with tips and strategies to get you started and help you reach your financial and life goals at every stage. For more information, please visit www.hfgwm.com or call 832.585.0110.

“The information contain herein is general in nature and may not be suitable for everyone. We encourage you to give us a call, to discuss your specific situation and to help determine the appropriate course of action.”

 

 

Mind Over Money

July 11, 2018
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Emotion often drives our financial decisions, even when logic should.

When we go to the grocery store, we seldom shop on logic alone. We may not even buy on price. We buy one type of yogurt over another because of brand loyalty, or because one brand has more appealing packaging than another. We buy five bananas because they are on sale for 29 cents this week – the bargain is right there; why not seize the opportunity? We pick up that gourmet ice cream that everyone gets – if everyone buys it, it must be a winner.  As casual and arbitrary as these decisions may be, they are remarkably like the decisions many investors make in the financial markets.

A degree of emotion also factors into many of our financial choices. There is even a discipline devoted to how our emotions affect our financial decisions: behavioral finance. Examples of emotionally driven financial behaviors are all around us, especially in the investment markets.

Behavior #1: Believing future performance relates to past performance. In truth, there is no relation. If an investment yields 8-10% for six consecutive years that does not mean it will yield 8-10% next year. Still, we may be lulled into expecting such performance – how can you go wrong with such a “rock solid” investment? In behavioral finance, this is called recency bias. Bullish investors tend to harbor it, and it may lead to irrational exuberance.  Similarly, investors adjust risk tolerance in light of past performance. If their portfolio returned spectacularly last year, they may be tempted to accept more risk this year. If they took major losses in the equity markets last year, they may become very risk-averse and get out of equities. Both behaviors assume the future will be like the past, when the future is really unknown.

Behavior #2: Investing on familiarity. Familiarity bias encourages you to make investment or consumer choices that are “friendly” and comfortable to you, even when they may be illogical. You go with what you know, without investigating what you don’t know or looking at other options. Another example of familiarity bias is when you invest in a company or a sector largely because you are attracted to or familiar with its “story” – its history, its reputation.

Behavior #3: Ignoring negative trends. This is known as the ostrich effect. We can ignore the reality of a correction or a bear market; we can ignore the fact that our credit card debt is increasing. Studies suggest that investors check in on their portfolios with less frequency during market slumps – they would rather not know the degree of damage.  

Behavior #4: Wanting decisions to pay off now. Patience tends to be a virtue in both equity investing and real estate investing, but we may suffer from hyperbolic discounting – a bias in which we want a quick payoff today rather than an even larger one that might result someday if we buy and hold. 

Behavior #5: Falling for a decoy. When given a third consumer choice, instead of two consumer choices, we may choose a different product than we originally would, and perhaps make a choice we would not have otherwise considered. Once, an ad in The Economist offered three kinds of subscriptions: $59 for online only, $159 for print only, and $159 for online + print. The $159 print-only option was an illustration of the decoy effect – the choice existed seemingly just to make the $159 online + print option look like a better deal.

Behavior #6: Seeing patterns where none exist. This is called the clustering illusion. You see it in casinos where a slot machine pays out twice an hour, and people line up to play that “lucky” machine, which has, in fact, just paid out randomly. Some investors fall prey to it in the markets.

Behavior #7: Following the herd. The more consumers or investors that subscribe to a particular belief, the greater the chance of other consumers or investors to join the herd, or “jump on the bandwagon,” for good or bad. This is the bandwagon effect. 

Behavior #8: Buying the amount of something that we are marketed. In our minds, we believe that there is an optimal amount of something per purchase. This is called unit bias, and when marketing suggests the ideal amount should be larger, we buy more of that product or service.

There are dozens of biases we may harbor, temporarily or regularly, all subjects of study in the discipline of behavioral finance. Recognizing them may help us to become a better consumer, and even a better investor.

At HFG Wealth Management, we embrace a method of financial planning known as Financial Life Planning™. We believe this is a financially effective and personally rewarding approach to creating a practical, lasting financial plan. As financial professionals using the life planning approach, our purpose is to assist individuals and families in creating a long-term vision that is consistent with their core values. At HFG we recognize that life events and life transitions can impact your financial responsibilities and your vision of the future. We are here to provide you with tips and strategies to get you started and help you reach your financial and life goals at every stage. For more information, please visit www.hfgwm.com or call 832.585.0110.

“The information contain herein is general in nature and may not be suitable for everyone. We encourage you to give us a call, to discuss your specific situation and to help determine the appropriate course of action.”

 

 

Beware of Emotions Affecting Your Money Decisions


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Today’s impulsive moves could breed tomorrow’s regrets.

When emotions and money intersect, the effects can be financially injurious. Emotions can cause us to overreact – or not act at all when we should.     

Think of the investors who always respond to sudden Wall Street volatility. That emotional response may not be warranted, and they may come to regret it.  In a typical market year, Wall Street can see big waves of volatility. This year, it has been easy to forget that truth. Daily retreats of this magnitude have been seen before, will be seen again, and should be taken in stride.

Fear and anxiety can also cause stubbornness. Some people have looked at money one way all their lives. Others have always seen investing from one perspective. Then, something happens that does not mesh with their outlook or perspective. In the face of such an event, they refuse to change or admit that their opinion may be wrong. To lose faith in their entrenched point of view would make them feel uneasy or lost. So, they doggedly cling to that point of view and do things the same way as they always have, even though it no longer makes any sense for their financial present or future. In this case, emotion is simply overriding logic.

What about those who treat revolving debt nonchalantly? Some people treat a credit card purchase like a cash purchase – or worse yet, they adopt a psychology in which buying something with a credit card feels like they are “getting it for free.” A kind of euphoria can set in: they have that dining room set or that ATV in their possession now; they can deal with paying it off tomorrow. This blissful ignorance (or dismissal) of the real cost of borrowing can dig a household deeper and deeper into debt, to the point where drawing down savings may be the only way to wipe it out.

How about those who put off important financial decisions? Postponing a retirement or estate planning decision does not always reflect caution or contemplation. Sometimes, it reflects a lack of knowledge or confidence. Worry and fear are the emotions clouding the picture. What clears things up? What makes these decisions easier? Communication with professionals. When the investor or saver recognizes a lack of understanding, shares his or her need to know with a financial professional, and asks for assistance, certainty can replace ambiguity. Emotions can keep people from doing the right things with their money – or lead them to keep doing the wrong things. As you save, invest, and plan for your future, try to let logic rule. Years from now, you may be thankful you did.

At HFG Wealth Management, we embrace a method of financial planning known as Financial Life Planning™. We believe this is a financially effective and personally rewarding approach to creating a practical, lasting financial plan. As financial professionals using the life planning approach, our purpose is to assist individuals and families in creating a long-term vision that is consistent with their core values. At HFG we recognize that life events and life transitions can impact your financial responsibilities and your vision of the future. We are here to provide you with tips and strategies to get you started and help you reach your financial and life goals at every stage. For more information, please visit www.hfgwm.com or call 832.585.0110.

“The information contain herein is general in nature and may not be suitable for everyone. We encourage you to give us a call, to discuss your specific situation and to help determine the appropriate course of action.”

 

 

Avoiding the Money Pitfalls of Past Generations


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Take these financial lessons to heart.

You have a chance to manage your money better than previous generations have. Some crucial financial steps may help you do just that.

Live below your means and refrain from living on margin. How much do you save per month? Generations ago, it was suggested that Americans routinely saved 10% or more of what they made, either depositing those savings or investing them. This kind of thriftiness is still found elsewhere in the world. It is said the average euro area household saves more than 12% of its earnings, and the current personal savings rate in Mexico is 20.6%. The  U.S. personal savings rate hit an all-time peak of 17.0% in 1975 and nowit has been below 4% since June. Easy credit is one culprit; the tendency to overspend in a strong economy is another. Remember to pay yourself first, not credit card companies. Collect experiences rather than possessions.

Recognize that there is no “sure thing” investment. Investors found that out in 2000 and 2007 when things shifted in the financial and housing markets. Diversification matters: you never know what asset class might soar or plummet in the future, and allocating your assets across different investment types gives you the potential to reduce overall portfolio risk. 

Plan for a 30-year retirement. According to some Social Security estimates, the average 65-year-old man is currently projected to live until age 84, and the average 65-year-old woman, to age 87. With advances in health care, living to 95 may become the norm for the average 35-year-old. 

Plan for your retirement first, your children’s college education second. Some baby boomers did the inverse, and some who did wonder if they made the right decision for their futures. College students can work and receive financial aid; for senior citizens, it is a different story.

Switch jobs for better pay. Generations ago, people tended to stay at the same job for several years or longer, whether their prospects were promising or not. If a better job lures you, do not be ashamed to leave your current employer for it – you may gain, financially. It is reported that payroll processing giant ADP found recently that a job change resulted in an average pay increase of 4.5% for a full-time worker.

Congratulate yourself on the good moves you have made, and plan more. Make another good move and chat with a financial professional about the ways you can continue to plan for a prosperous future.

At HFG Wealth Management, we embrace a method of financial planning known as Financial Life Planning™. We believe this is a financially effective and personally rewarding approach to creating a practical, lasting financial plan. As financial professionals using the life planning approach, our purpose is to assist individuals and families in creating a long-term vision that is consistent with their core values. At HFG we recognize that life events and life transitions can impact your financial responsibilities and your vision of the future. We are here to provide you with tips and strategies to get you started and help you reach your financial and life goals at every stage. For more information, please visit www.hfgwm.com or call 832.585.0110.

“The information contain herein is general in nature and may not be suitable for everyone. We encourage you to give us a call, to discuss your specific situation and to help determine the appropriate course of action.”

 

 

 

 

What Expenses Could Change When You Retire?

June 20, 2018
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Some costs could rise, fall or even disappear.

Retirement may seem near at hand or far away, but one thing is certain: your future will differ from your present.  Financially, that fact is worth remembering. Some of the costs you have paid regularly all these years may suddenly decrease or fade away. Others may increase.

Will your insurance costs rise with age? Maybe not. You may find that your overall insurance expenses decline. Yes, health insurance becomes more expensive the older you get – but those premiums are merely part of the bigger insurance coverage picture. If you stop working in retirement, you have no need for disability insurance. You might have little need for life insurance, for that matter. You may have paid off your home and other major debts, and rather than drawing income from work, you will be drawing it from investments and Social Security.

You can expect your medical expenses to increase. By how much, exactly? That will vary per household, but perhaps you have read some of the latest estimates.

How about your income taxes? If you live on 70-80% of your end salary in retirement – which is not unusual – then you may find yourself in a lower income tax bracket. Yes, your Social Security income may be taxed – but, even in the worst-case scenario, no more than 85% of it will be.   If you have invested using a Roth IRA, you will be looking at some tax-free retirement income – provided, of course, you have owned the IRA for at least five years and are older than 59½ when you start making withdrawals. While a Roth account held in a workplace retirement plan requires withdrawals beginning at age 70½, the withdrawals will still be tax-free if you follow IRS rules.

Will your housing costs fall? Over the long term, they may. Some retirees own their homes free and clear and others nearly do. Homeowner association fees and property taxes must still be paid, so, while that mortgage balance may be gone or nearly gone, other recurring costs will remain.  Homes inevitably need repairs, so, in some random year, you may find your housing costs jumping. Downsizing and moving into a smaller home can also mean a short-term rise in your housing expenses. If you do downsize and move, you will hopefully relocate to an area where housing costs are lower.

Will you face education costs? You may have retired your own college debt, but if you have children forty or fifty years younger than you are, you could risk retiring with some of their student loan debt on your hands. That expense could linger into your retirement – a valid reason to reject assuming it in the first place.

One “cost” may disappear, leaving you with a little more money each month. Once retired, your constant per-paycheck need to save for retirement vanishes. So if you are assigning 10% or 20% of your paychecks to your retirement accounts, you may be pleasantly surprised to find that money back in your wallet (so to speak) after you transition into your “second act.”

At HFG Wealth Management, we embrace a method of financial planning known as Financial Life Planning™. We believe this is a financially effective and personally rewarding approach to creating a practical, lasting financial plan. As financial professionals using the life planning approach, our purpose is to assist individuals and families in creating a long-term vision that is consistent with their core values. At HFG we recognize that life events and life transitions can impact your financial responsibilities and your vision of the future. We are here to provide you with tips and strategies to get you started and help you reach your financial and life goals at every stage. For more information, please visit www.hfgwm.com or call 832.585.0110.

 “The information contain herein is general in nature and may not be suitable for everyone. We encourage you to give us a call, to discuss your specific situation and to help determine the appropriate course of action.”

 

 

Is Your Financial Paperwork In Order For Retirement?


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Where is everything? Time to organize and centralize your documents.

Before retirement begins, gather what you need. Put as much documentation as you can in one place, for you and those you love. It could be a password-protected online vault; it could be a file cabinet; it could be a file folder. Regardless of what it is, by centralizing the location of important papers you are saving yourself from disorganization and headaches in the future.

  • What should go in the vault, cabinet or folder(s)? Crucial financial information and more. You will want to include…
  • Those quarterly/annual statements. Recent performance paperwork for IRAs, 401(k)s, funds, brokerage accounts and so forth. Include the statements from the latest quarter and the statements from the end of the previous calendar year (that is, the last Q4 statement you received). You no longer get paper statements? Print out the equivalent, or if you really want to minimize clutter, just print out the links to the online statements. (Someone is going to need your passwords, of course.) These documents can also become handy in figuring out a retirement income distribution strategy.
  • Healthcare benefit info. Are you enrolled in Medicare or a Medicare Advantage plan? Are you in a group health plan? Do you pay for your own health coverage? Own a long term care policy? Gather the policies together in your new retirement command center, and include related literature so you can study their benefit summaries, coverage options, and rules and regulations. Contact info for insurers, HMOs, your doctor(s) and the insurance agent who sold you a particular policy should also go in here.
  • Life insurance info. Do you have a straight term insurance policy, no potential for cash value whatsoever? Keep a record of when the level premiums end. If you have a whole life policy, you need paperwork communicating the death benefit, the present cash value in the policy and the required monthly premiums.
  • Beneficiary designation forms. Few pre-retirees realize that beneficiary designations often take priority over requests made in a will when it comes to 401(k)s, 403(b)s and IRAs. Hopefully, you have retained copies of these forms. If not, you can request them from the account custodians and review the choices you have made. Are they choices you would still make today? By reviewing them in the company of a retirement planner or an attorney, you can gauge the tax efficiency of the eventual transfer of assets.
  • Social Security basics. If you have not claimed benefits yet, put your Social Security card, your W-2 form from last year, certified copies of your birth certificate, marriage license or divorce papers in one place, and military discharge paperwork and a copy of your W-2 form for last year (or Schedule SE and Schedule C plus 1040 form, if you work for yourself), and military discharge papers or proof of citizenship, if applicable. Take a look at your Social Security statement that tracks your accrued benefits (online or hard copy) and make a screengrab of it or print it out.
  • Pension matters. Will you receive a bona fide pension in retirement? If so, you want to collect any special letters or bulletins from your employer. You want your Individual Benefit Statement telling you about the benefits you have earned and for which you may become eligible; you also want the Summary Plan Description and contact info for someone at the employee benefits department where you worked.
  • Real estate documents. Gather up your deed, mortgage docs, property tax statements and homeowner insurance policy. Also, make a list of the contents of your home and their estimated value – you may be away from your home more in retirement, so those items may be more vulnerable as a consequence.
  • Estate planning paperwork. Put copies of your estate plan and any trust paperwork within the collection, and of course a will. In case of a crisis of mind or body, your loved ones may need to find a durable power of attorney or health care directive, so include those documents if you have them and let them know where to find them.
  • Tax returns. Should you only keep your 1040 and state return from the previous year? How about those for the past 7 years? Have you kept every one since 1982 or 1974? At the very least, you should have a copy of returns from the prior year in this collection.
  • A list of your digital assets. We all have them now, and they are far from trivial – the contents of a cloud, a photo library, or a Facebook page may be vital to your image or your business. Passwords must be compiled too, of course.      

This will take a little work, but you will be glad you did it someday. Consider this a Saturday morning or weekend project. It may lead to some discoveries and possibly prompt some alterations to your financial picture as you prepare for retirement.

At HFG Wealth Management, we embrace a method of financial planning known as Financial Life Planning™. We believe this is a financially effective and personally rewarding approach to creating a practical, lasting financial plan. As financial professionals using the life planning approach, our purpose is to assist individuals and families in creating a long-term vision that is consistent with their core values. At HFG we recognize that life events and life transitions can impact your financial responsibilities and your vision of the future. We are here to provide you with tips and strategies to get you started and help you reach your financial and life goals at every stage. For more information, please visit www.hfgwm.com or call 832.585.0110.

“The information contain herein is general in nature and may not be suitable for everyone. We encourage you to give us a call, to discuss your specific situation and to help determine the appropriate course of action.”

 

Do Women Face Greater Retirement Challenges?

June 6, 2018
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If so, how can they plan to meet those challenges?

Why are women so challenged to retire comfortably? You can cite a number of factors that can potentially impact a woman’s retirement prospects and retirement experience. A woman may spend less time in the workforce during her life than a man due to childrearing and caregiving needs, with a corresponding interruption in both wages and workplace retirement plan participation. A divorce can hugely alter a woman’s finances and financial outlook. As women live longer on average than men, they face slightly greater longevity risk – the risk of eventually outliving retirement savings. There is also the gender wage gap that is narrowing, but still evident.

What can women do to respond to these financial challenges? Several steps are worth taking.

  • Invest early & consistently. Women should realize that, on average, they may need more years of retirement income than men. Social Security will not provide all the money they need, and, in the future, it may not even pay out as much as it does today. Accumulated retirement savings will need to be tapped as an income stream. Saving and investing regularly through IRA and workplace retirement accounts is vital and the earlier the better and so is getting the employer match, if one is offered. Catch-up contributions after 50 should also be a goal.
  • Consider Roth IRA & HSA. Imagine having a source of tax-free retirement income. Imagine having a healthcare fund that allows tax-free withdrawals. A Roth IRA can potentially provide the former; a Health Savings Account, the latter. An HSA is even funded with pre-tax dollars, as opposed to a Roth IRA, which is funded with after-tax dollars – so an HSA owner can potentially get tax-deductible contributions as well as tax-free growth and tax-free withdrawals.  IRS rules must be followed to get these tax perks, but they are not hard to abide by. A Roth IRA needs to be owned for only five tax years before tax-free withdrawals may be taken (the owner does need to be older than age 59½ at that time). Those who make too much money to contribute to a Roth IRA can still convert a traditional IRA to a Roth. HSA’s have to be used in conjunction with high-deductible health plans, and HSA savings must be withdrawn to pay for qualified health expenses in order to be tax-exempt. One intriguing HSA detail worth remembering: after attaining age 65 or Medicare eligibility, an HSA owner can withdraw HSA funds for non-medical expenses (these types of withdrawals are characterized as taxable income).
  • Work longer in pursuit of greater monthly Social Security benefits. Staying in the workforce even one or two years longer means one or two years less of retirement to fund, and for each year a woman refrains from filing for Social Security after age 62, her monthly Social Security benefit rises by about 8%. Social Security also pays the same monthly benefit to men and women at the same age – unlike the typical privately funded income contract, which may pay a woman of a certain age less than her male counterpart as the payments are calculated using gender-based actuarial tables.
  • Find a method to fund eldercare. Many women are going to outlive their spouses, perhaps by a decade or longer. Their deaths (and the deaths of their spouses) may not be sudden. While many women may not eventually need months of rehabilitation, in-home care, or hospice care, many other women will.

Today, financially aware women are planning to meet retirement challenges. They are conferring with financial advisors in recognition of those tests – and they are strategizing to take greater control over their financial futures.

At HFG Wealth Management, we embrace a method of financial planning known as Financial Life Planning™. We believe this is a financially effective and personally rewarding approach to creating a practical, lasting financial plan. As financial professionals using the life planning approach, our purpose is to assist individuals and families in creating a long-term vision that is consistent with their core values. At HFG we recognize that life events and life transitions can impact your financial responsibilities and your vision of the future. We are here to provide you with tips and strategies to get you started and help you reach your financial and life goals at every stage. For more information, please visit www.hfgwm.com or call 832.585.0110.

“The information contain herein is general in nature and may not be suitable for everyone. We encourage you to give us a call, to discuss your specific situation and to help determine the appropriate course of action.”

2018 Retirement Account Limits


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How much can you contribute this year?

In 2018, you have another chance to max out your retirement accounts. Here is a rundown of yearly contribution limits for the popular retirement savings vehicles.

IRA’s. The 2018 limits are the same as in 2017: $5,500 for IRA owners who will be 49 and younger this year and $6,500 for IRA owners who will be 50 or older this year. These limits apply to both Roth and traditional IRA’s.

What if you own multiple IRA’s? This $5,500/$6,500 limit applies to your total IRA contributions for a calendar year. So, for example, should you happen to have five IRA’s, you could make an equal contribution of $1,100 (or $1,300) to each of them in 2017 or unequal contributions to them not exceeding the applicable $5,500/$6,500 limit. Keep in mind that you can fund your IRA until the federal income tax deadline. High earners may find their ability to make a full Roth IRA contribution restricted. This applies to a single filer or head of household whose adjusted gross income falls within the $120,000-135,000 range and to married couples whose AGI’s land between $189,000-199,000. If your AGI exceeds the high ends of those phase-out ranges, you may not make a 2018 Roth IRA contribution. (For tax year 2017, the respective phase-out ranges are $118,000-133,000 and $186,000-196,000.)

401(k)s, 403(b)s, and 457s. Each of these employee retirement plans have 2018 contribution limits of $18,500. The 2018 contribution limit is $24,500, however, if you will be 50 or older this year – that means you are eligible to make a “catch-up” contribution of up to $6,000 above the usual limit. Both 403(b) and 457(b) plans offer savers special catch-up contribution opportunities. If you participate in a 403(b) plan, you can also opt to take advantage of its 15-year rule: if you have 15 or more years of tenure and your average yearly contribution to the plan has been $5,000 or less, you can direct an extra $3,000 per year into the plan. If you are enrolled in a 457(b) plan sponsored by a state or local government agency, you can contribute up to double the standard annual limit each year if you are within three years of normal retirement age (as the plan defines). In 2017, that meant that you could put up to $36,000 into your 457(b) plan in that circumstance; in 2018, the limit becomes $37,000. You can make this “double contribution” and the standard catch-up contribution of up to $6,000 if you are 50 or older in 2018.

SIMPLE IRA and SEP-IRA. In 2018, the contribution limit for a SIMPLE IRA is $12,500; those who will be 50 or older this year may contribute up to $15,500. Business owners need to match these annual employee contributions to at least some degree. Self-employed individuals can contribute as an employee and employer to a SIMPLE IRA.  Business owners and the self-employed can also contribute to SEP-IRAs. All contributions to these accounts have to come from the business, and all contributions are tax deductible. The annual contribution limit on a SEP-IRA is very high – in 2018, it is either $55,000 or 25% of the business owner’s net self-employment income, whichever is lower.

At HFG Wealth Management, we embrace a method of financial planning known as Financial Life Planning™. We believe this is a financially effective and personally rewarding approach to creating a practical, lasting financial plan. As financial professionals using the life planning approach, our purpose is to assist individuals and families in creating a long-term vision that is consistent with their core values. At HFG we recognize that life events and life transitions can impact your financial responsibilities and your vision of the future. We are here to provide you with tips and strategies to get you started and help you reach your financial and life goals at every stage. For more information, please visit www.hfgwm.com or call 832.585.0110.

“The information contain herein is general in nature and may not be suitable for everyone. We encourage you to give us a call, to discuss your specific situation and to help determine the appropriate course of action.”

Are Your Beneficiary Designations Up to Date?


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Who should inherit your IRA or 401(k)? See that they do

Here’s a simple financial question: who is the beneficiary of your IRA? How about your 401(k) or annuity? You may be saying, “I’m not sure.” It is wise to periodically review your beneficiary designations.

Your choices may need to change with the times. When did you open your first IRA? When did you buy your life insurance policy? Was it back in the Nineties? Are you still living in the same home and working at the same job as you did back then? Have your priorities changed?  While your beneficiary choices may seem obvious and rock-solid when you initially make them, time has a way of altering things. In a stretch of five or ten years, some major changes can occur in your life and may warrant changes in your beneficiary decisions.

In fact, you might want to review them annually. Here’s why: companies frequently change custodians when it comes to retirement plans and insurance policies. When a new custodian comes on board, a beneficiary designation can get lost in the paper shuffle. (It has happened.) If you don’t have a designated beneficiary on your retirement accounts, those assets may go to the “default” beneficiaries when you pass away, which might throw a wrench into your estate planning. An example: under ERISA, your spouse receives your 401(k) assets if you pass away. Your spouse must waive that privilege in writing for those assets to go to your children instead.

How your choices affect your loved ones. The beneficiary of your IRA, annuity, 401(k), or life insurance policy may be your spouse, your child, maybe another loved one, or maybe even an institution. Naming a beneficiary helps to keep these assets out of probate when you pass away. Many people do not realize that beneficiary designations take priority over bequests made in a will or living trust. For example, if you long ago named a son or daughter who is now estranged from you as the beneficiary of your life insurance policy, he or she will receive the death benefit when you die, regardless of what your will states.

You may have even chosen the “smartest financial mind” in your family as your beneficiary, thinking that he or she has the knowledge to carry out your financial wishes in the event of your death. But what if this person passes away before you do? What if you change your mind about the way you want your assets distributed and are unable to communicate your intentions in time? And what if he or she inherits tax problems as a result of receiving your assets?

How your choices affect your estate. If you are naming your spouse as your beneficiary, the tax consequences are less thorny. Assets you inherit from your spouse aren’t subject to estate tax, as long as you are a U.S. citizen. When the beneficiary isn’t your spouse, things get a little more complicated – for your estate and for your beneficiary’s estate. If you name, for example, your son or your sister as the beneficiary of your retirement plan assets, the amount of those assets will be included in the value of your taxable estate. (This might mean a higher estate tax bill for your heirs.) And the problem will persist: when your non-spouse beneficiary inherits those retirement plan assets, those assets become part of their taxable estate, and their heirs might face higher estate taxes. Your non-spouse heir might also have to take required income distributions from that retirement plan someday and pay the required taxes on that income.  If you properly designate a charity or other 501(c)(3) non-profit organization as a beneficiary of your retirement account assets, the assets can pass to the charity without your estate being taxed, and the gift will be deductible for estate tax purposes.

At HFG Wealth Management, we embrace a holistic method of financial planning known as Financial Life Planning™. We believe this is a financially effective and personally rewarding approach to creating a practical, lasting financial plan. As financial professionals using the life planning approach, our purpose is to assist individuals and families in creating a long-term vision that is consistent with their core values. At HFG we recognize that life events and life transitions can impact your financial responsibilities and your vision of the future. We are here to provide you with tips and strategies to get you started and help you reach your financial and life goals at every stage. For more information, please visit www.hfgwm.com or call 832.585.0110.

 

Paying for College Can Be a Family Affair

May 23, 2018
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College planning isn’t for parents only. It’s an investment that should involve the whole family and offer students their first taste of financial planning. It’s a time for parents to be realistic about what they can afford and for students to give serious thought to the value of a college education and where it will get them in life. Most important, an in-depth discussion requires families to sit down at the kitchen table and talk about money.

The psychological barriers to this discussion can be huge. Parents who think it’s their obligation to pay for their children’s college education (because their parents paid for theirs) are feeling guilty because they haven’t saved enough. Children who never had to worry about paying for things before and who want to preserve their childhood a little longer don’t think they should have to worry about where the money will come from. None of these attitudes will help get the FAFSA form filled out. Better to face the realities of college head-on now and use the experience as a lesson in financial planning.

Lesson 1: Goal Setting
Most families scrambling to pay for college may now regret not having set college goals earlier. Families will, however, need to adjust the goal-setting process to account for the fact that college is upon them and no longer a vague event some 18 years in the future. Once a child gets to high school, goal-setting needs to be practical and realistic. No pie-in-the-sky dreams about obtaining multiple degrees at private colleges. And it needs to involve the child.

Moreover, it should go beyond the four years of college to include career plans, income targets, and lifestyle goals to determine how much debt the student feels comfortable taking on. Will an elite private school pay for itself in higher postgraduate earnings? Or would the child prefer a less expensive school in order not to be burdened with debt and therefore free to pursue a lower paying career such as teaching?

The goal-setting process at this stage requires the student to think beyond college majors and freshman year beer busts and do some real life planning. While the choices may be difficult, the process is invaluable. The younger a person is when life-planning and goal-setting skills are developed, the more empowered that individual will feel throughout life.

Lesson 2: Tax-Deferred Compounding
Regrets often provide the greatest life lessons. It’s too late now for the parents of a high school senior to compound savings over 18 years, but they may be able to use this missed opportunity as a lesson in saving for their own retirement. And you can bet that a child with no college savings is determined never to come up short again, making this a perfect time to discuss some finance basics: save 10% of your income; max out your IRA; save up for what you want rather than going into debt.

Let’s not forget the compounding lesson, which paradoxically, is sometimes made more difficult by the large end-dollar amounts promised. For example, a young person can accumulate over $1 million in 50 years by saving just $150 per month at 8%. The financial services industry often holds these large amounts out as a carrot to motivate people to save, but they just make the monthly savings amount seem too pitiful to make a difference. One might as well blow it on the latest indulgence. But that $150 is the crucial seed that gets the whole ball rolling. In time, the earnings will represent a larger share of the whole, but only if the seed money is invested first. Perhaps the compounding lesson should focus on the amount going into the account, not the pot of gold at the end.

Lesson 3: Budgeting and Cash Flow
College is the perfect time to introduce young people to the essentials of budgeting. Even if credit cards, payment plans and parents help smooth out the cash flow, students should not go off to college without knowing how much everything will cost. The College Board breaks down college expenses into five categories: tuition and fees, room and board, books and supplies, personal expenses, and travel. If college is a few years away, families can use the average costs listed in the College Board’s “Trends in College Pricing” (http://trends. collegeboard.org/college pricing) to develop a preliminary budget and make basic decisions about which type of college to go to, private vs. public, instate or out, and so on.

Even so, families will need to consider their own individual circumstances. Will parents visit the school several times throughout the year? (Add airfare and hotel/meal costs.) Will the child have a car at school? (Add insurance, gas, parking, and maintenance costs.) Will the child go to Miami for spring break? (Not exactly a college expense, but it should be part of the budget.) Even if parents are able and willing to pay for everything, the off-to-college budgeting exercise is a meaningful way to prepare kids for the financial responsibilities of life. And no matter how tight or loose the budget is, it never hurts to look for ways to reduce college costs.

Lesson 4: Debt Management
Any child who has ever borrowed money from his parents has had some experience with debt. But it probably didn’t involve interest or fees and it certainly didn’t introduce the child to the nation’s most unforgiving lender, Uncle Sam. Student loans seem so magnanimous at first—no payments till after graduation and forbearances relatively easy to obtain—but once the money is borrowed, the debt must be managed with care, because default is not an option.
The principles of debt management seem obvious to adults, but children swept up in the financial aid game need to learn them: don’t borrow more than you can afford to repay, shop around for the best rates and terms, and understand the full cost of the loan over the entire payment period. Loan consolidation, for example, may seem like a good deal until you calculate the total interest over the life of the loan. Students will need to be reminded that many of those nice student aid people who are helping them obtain money for college are really in the business of selling loans and may not have students’ best interests at heart.

Next to retirement, college planning is one of the most serious aspects of financial planning, because it influences a young adult’s total lifetime earnings. The type of degree, where it comes from, and the people the student meets in college all help shape the career direction and opportunities the student will have in life. The planning process may be considered an important part of the student’s education, as it prepares the student for the many financial- and life-planning issues that will come up in the years ahead.

At HFG Wealth Management, we embrace a holistic method of financial planning known as Financial Life Planning™. We believe this is a financially effective and personally rewarding approach to creating a practical, lasting financial plan. As financial professionals using the life planning approach, our purpose is to assist individuals and families in creating a long-term vision that is consistent with their core values. At HFG we recognize that life events and life transitions can impact your financial responsibilities and your vision of the future. We are here to provide you with tips and strategies to get you started and help you reach your financial and life goals at every stage. For more information, please visit www.hfgwm.com or call 832.585.0110.

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Copyright © 2018. HFG Wealth Management, LLC. Investment advisory services offered through HFG Wealth Management, LLC – An independent Registered Investment Advisory firm registered with the SEC. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Therefore, any information presented here should only be relied upon when coordinated with individual professional advice. [ more disclosures ]